No Quick Fixes for Europe's Energy Shortages

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Energy costs in Europe are skyrocketing, with prices for natural gas and electricity hitting a series of record highs and those for liquids fuels little better — even before tougher sanctions on Russian oil and products come into effect. The toxic mix is driving inflation up on the continent and economic activity down. Calls abound for Europe to become more self-sufficient but — at least when it comes to oil and gas — it has few options to alleviate near-term pressures and may not have the appetite to undertake medium-term developments due to its bold climate ambitions. In short, there is no sleeping giant to awaken in Europe’s energy supply landscape, meaning demand destruction may be the primary mechanism to balance markets. A quick look at the top holders of oil and gas reserves shows the most resource-rich country — Norway — barely makes the top 20 globally. Norway’s Equinor increased gas production 18% in the second quarter through a mix of drilling, optimization and deferred maintenance. "We will continue to try to sustain as much of the gas production as we can," CFO Ulrica Fearn told investors on a second quarter call. But the need for maintenance outages at key hubs has left Norway’s exports at 314 million cubic meters per day on Aug. 25, down from 334 Mcm/d a month earlier. UK gas production rose 26% to 16.8 billion cubic meters in the first half of 2022, but the boost came against historically low 2021 volumes and was down 10% against 2020 levels. The total covered about half of the UK’s demand.

Companies are doing infill drilling and optimizing facilities where they have opportunities in places like the North Sea and the handful of remaining legacy onshore fields. But most volumes that could come to Europe before the end of the coming winter needed to be in the development pipeline long before now. Still, European majors including TotalEnergies, BP and Shell have pledged to find short-term solutions. Total is “accelerating development of short-cycle projects, for example, and notably, to increase gas deliveries to the European market from the North Sea,” CEO Patrick Pouyanne told investors. Shell is retrofitting a floating production vessel to wring more gas out of an existing oil field beginning this fall and sanctioned its Jackdaw gas field that will be online in the second half of 2025. Independent Harbour Energy brought on its delayed Tolmount Field in late April, and competitor Neptune Energy has started drilling at its infill project at the Cygnus gas field. Looking further ahead, in the Black Sea, the first phase of Turkey’s Sakarya field could be onstream in 2023, producing 3.5 bcm/yr with another 10 Bcm/yr in Phase 2 in 2027. Romania is trying to accelerate its Neptun Deep field, which could cover its own demand and regional exports, but OMV Petrom has yet to sanction it.

More radical options are gaining some traction. Ramping up output from the earthquake plagued Groningen field in the Netherlands remains a stop-gap alternative should continental gas supplies fall short. There are growing calls for countries to rethink their restrictions on hydraulic fracturing, although a host of issues remain. Even conventional offshore gas developments continue to face headwinds from campaigners who see the answer as more renewables, not more oil and gas. “That will be a function of how the Dutch government kind of weighs off the demand for gas versus the supplies,” Exxon Mobil CEO Darren Woods said of a possible expansion of Groningen gas production. “But the capacity is there.” Drilling has begun at Hungary’s Project Corvinus development, which the government calls an “unconventional” gas field, with first production targeted in January. A recent poll found 27% of residents in Germany supported fracking. But after retreating from the promise of large shale gas reserves in places like Poland and Romania, it is not clear that the majors would have any appetite to tackle significant onshore developments in Europe that would be sure to draw controversy. “The equation is as simple as that, even if some people might find it difficult at first to step out of their comfort zone and accept the consequence of the current crisis," Wintershall CEO Mario Mehren said of Europe’s need to produce more domestic energy. Meanwhile, Greenpeace is suing to stop Shell’s Jackdaw permits.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact

Offshore Oil and Gas, Deepwater, Upstream Projects, Corporate Strategy , Independent E&Ps, Majors, Regional Integrateds, Shale, Ukraine Crisis
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